Interest rate to slow down the economy

from the depth of my mind, the mind speculates.

economy: the interest rates are going up, meaning that the cost of borrowing will increase, making purchases of things less affordable. this is a sign that the central bank is applying a slight force to slow down the economy. this is done to ensure that inflation would not take place as too many people afford to buy houses, cars and other things while, at the same time encouraging people to save money. (as the cost of borrowing increases, so does the profit from saving money in the bank). people who deposit money in the bank are technically the lender.

why is this happening? prices of things especially houses are going up too quickly because demand exceeds supply. and the gap between the demand and supply is growing at a fast rate.

will the bubble explodes? not in the near future. the central bank is taking the right decision to slow down inflation. i speculate that the interest rate will continue to increase eventually, as the demand for houses keep on increasing. with the help from banks, an average joe with a salary of RM 3000 can manage to buy a house amounting to RM 400,000. if no proper mechanism to screen affordability are in place, then even those who cannot afford to pay the monthly installment will be approved to buy a house beyond their means. causing the bubble to burst.

inflation is on the rise as the value of basic goods getting more expensive. the electricity tariff has just gone up. while the tariff hike does not introduce shock to consumers using less than RM 77 worth of electricity, they will eventually feel the effect through the increase of other products, as these commercial users of electricity will incur more cost due to tariff hike.

purchasing parity will go down. meaning that with the same amount of ringgit, you can buy less items that you used to do a while back. implying that the value of ringgit has gone down. so what is not being affected by inflation? GOLD. the same amount of gold can be used to buy a goat during the times of Prophet Muhammad SAW as you can do it today.

but the futures price of gold is lower than the spot market price of gold. why? because market expects that the supply of gold cannot be promised in the future. gold is becoming too valuable in the future that people believe that no price today can guarantee the delivery of gold.